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The effectiveness of the fiscal policy response to COVID-19 through the lens of short and long run labor market effects of COVID-19 measures

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  • Patrik Barisic

    (Croatian National Bank, Zagreb, Croatia)

  • Tibor Kovac

    (The Institute of Economics, Zagreb, Croatia)

Abstract

Lack of information on the adequacy of fiscal measures undertaken in the COVID-19 crisis and its long-term adverse effects on economic growth and labor market outcomes has raised debates about the impact of fiscal austerity and fears of slower recovery from the ongoing economic downturn. This paper analyzes the short and long-term effects of the fiscal policy measures undertaken in the COVID-19 crisis in the EU-27. For the short-term estimation, we use Okun’s law. To examine the long-run effects, we use the concept of potential output using a production function approach. The findings from this paper are that in the short-term, fiscal measures were generally effective. In the long-term, the COVID-19 crisis would have had a negative and permanent effect on the potential GDP growth if the policymakers had undertaken no fiscal measures.

Suggested Citation

  • Patrik Barisic & Tibor Kovac, 2022. "The effectiveness of the fiscal policy response to COVID-19 through the lens of short and long run labor market effects of COVID-19 measures," Public Sector Economics, Institute of Public Finance, vol. 46(1), pages 43-81.
    • Handle: RePEc:ipf:psejou:v:46:y:2022:i:1:p:43-81
    DOI: 10.3326/pse.46.1.2
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    More about this item

    Keywords

    COVID-19; fiscal response; unemployment; Okun’s law; potential output;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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